–Total CPI, Core (Ex-Fresh Food), Both +1.6% Y/Y, Slowest in 22 Months
–Core-Core CPI (Ex-Fresh Food, Energy) Moderates to 11-Month Low of +3.1%
By Max Sato
(MaceNews) – Consumer inflation in Tokyo, the leading indicator of the national average, eased at a much faster pace than expected in January in all three key measures as food price markups lost more steam, utility subsides continued to trim energy bills and hotel charges slowed sharply after their recent surge on base-year effects, data from the Ministry of Internal Affairs and Communications released Friday showed.
The core CPI (excluding fresh food), the key measure for the Bank of Japan’s policy decision, posted a 22-month low of a 1.6 % rise on year, slowing further from a 2.1% gain in December. The year-over-year rise in the total CPI also dipped a 22-month low of 1.6% from 2.4 percent.
The core-core CPI (excluding fresh food and energy) annual rate moderated to an 11-month low of 3.1% from 3.5%, slowing further from a 41-year high of 4.0% hit in July 2023. The recent peak for this measure came later as it is not influenced by surging energy costs.
Service prices rose twice as fast as goods prices did at the start of the year but they both slowed from December. If firms continue to reflect higher labor costs in sales prices, it can lead to more sustained wage hikes, which in turn would prompt Bank of Japan policymakers to unwind monetary policy stimulus later this year.
At its Jan. 22-23 meeting, the BOJ board retained its guidance that it will “patiently continue with monetary easing” in order to “achieve the price stability target of 2% in a sustainable and stable manner, accompanied by wage increases.” Under the yield curve control framework, it maintained the targets of minus 0.1 percent for the short-term policy rate and “around zero percent” for the 10-year bond yield. BOJ policymakers are expected to maintain their easing stance at least until April, when they hope to see clearer signs that wages will continue rising substantially at the start of a new fiscal year.
The key points from the Tokyo CPI data:
* The core consumer price index (excluding fresh food) in the capital’s 23 wards rose 1.6% on year in January, below the median economist forecast of a 1.9% rise (forecasts ranged from 1.7% to 2.2% gains). It is the 29th straight year-over-year rise but the slowest since the 0.8% rise in March 2022. The slowdown of the core measure began in February 2023, when it eased sharply from a 41-year high of 4.3% in January as the effects of government subsidies for electricity and natural gas utilities kicked in.
* The prices of services excluding owners’ equivalent rent gained 2.6% on the year in January, adding 0.89 point to the Tokyo CPI, following a 3.3% rise (plus 1.16 points) in December. The recent uptrend in services costs reflects moves among many firms to raise wages to secure workers. The annual rate of goods prices excluding fresh food rose at a slower pace of 1.3% (plus 0.56 point), easing further from 2.0% (plus 0.82 point).
* The core-core CPI (excluding fresh food and energy) — a key indicator of the underlying trend of inflation — rose 3.1% on the year in January for the 22nd straight rise, easing from 3.5% in December. It was also below the median forecast of a 3.4% rise (forecasts ranged from 3.1% to 3.5%) and the slowest since the 3.1% rise in February 2023.
* The total CPI rose 1.6% on year in January, marking the 29th straight year-over-year gain but easing from 2.4% in December. It was the slowest pace since the 1.3% gain in March 2022 and below the median forecast of a 2.0% rise (forecasts ranged from 1.8% to 2.5% gains). The annual rate fell to 3.4% in February 2023 from a 41-year high of 4.4% the previous month.
* Fresh food prices, a volatile factor, rose 2.6% on year in January, pushing up the overall index by 0.11 percentage point, following a 9.4% surge and a 0.37-point contribution the previous month.
* Food excluding perishables rose 5.7% on year (a 1.27-point contribution to the total CPI) in January, easing further from a 6.0% rise in December with a 1.34-point contribution. This category replaced energy as the largest contributor to the CPI increase in October 2022 (1.27 points vs. 1.20 points).
* Energy prices fell 20.1% on year in January, pushing down the total index by 1.26 percentage points, with the pace of decrease accelerating further from a 18.8% fall (minus 1.16 points) in December.
* In the energy category, gasoline prices rose 4.1% on the year with a positive 0.02-point contribution to the CPI after a 4.1% rise (plus 0.02 point) the previous month. Retail regular gasoline prices hit record highs from late August to early September as the government scaled back subsides to refineries. The national average price was little changed from mid-December to mid-January.
* Electricity charges fell 22.2% on the year (minus 0.76 point) after dipping 21.7% (minus 0.74 point) the previous month. The prices for natural gas supplied to homes slid 24.7% (minus 0.53 point) after dipping 21.9% (minus 0.45 point). The government has been providing subsidies for electricity and natural gas since January 2023 (reflected in February bills onward). The program was scheduled to end in September but it has been extended it until April 2024.
* The prices for household durable goods rose 0.9% with a 0.01-point contribution to the CPI in January after rising 0.4% (zero contribution) in December and posting their first year-on-year decrease in 20 months in November, down 1.4% with a negative 0.02-point contribution.
* Accommodations costs rose 26.9% on the year with a positive 0.29-point contribution after rising 59.0% (plus 0.53 point) in December and 62.9% (plus 0.56 point) in November. The recent surge was in reaction to a 15.3% drop (minus 0.18 point) in December 2022 and a 16.6% slump (mins 0.19 point) in November 2022. The government in October that year began subsidizing domestic travel under a new nationwide program, lowering the costs for tourism.
* Consumer prices also received a slight downward pressure from landline telephone charges, which fell 11.2% on year in January with a negative 0.05-point contribution after being flat in December. Major carriers unified landline fees across the country, effective Jan. 1, resulting in lower prices for long-distance calls.